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What You Need To Know About Tax for Expats

Author: Benedict Kemper
by Benedict Kemper
Posted: May 25, 2018

Moving to another country is often a daunting task. It can be a difficult time for people: filling out forms, documents, agreements, and other legal issues can be so overwhelming that certain matters are overseen. The taxation of U.S. expatriates (tax for expats) is often forgotten about, and it can be costly. If someone is a U.S. Citizen, or if they were a Resident Alien (Green Card Holder), the U.S. Internal Revenue Agency will continue to tax them for life despite living in another country (only ceasing 10 years after loss or renunciation of citizenship.)

How can an Expat Reduce Taxation Amounts?

Expats have many credits and exclusions they can take advantage of. Expats can use the Foreign Earned Income Exclusion (FEIE) via IRS Form 2555 to exclude a certain amount of income from U.S. taxation ($102,100 for the 2017 tax year), reducing the total earn income that will be taxed by the U.S. The FEIE cannot exclude incomes such as pensions, interest, capital gains, and US-sourced income, so expats must pay full US tax for expats on those. To qualify for the FEIE, an expat must pass a physical presence test, proving they have been inside a foreign country for 330 days out of any 365-day period. Another is the Foreign Housing Exclusion, reducing tax amounts by excluding housing expenses, such as utilities, and rent. A credit that is available is the Foreign Tax Credit, accessible by filing IRS Form 1116, which allows an expat to subtract the tax on income that is already taxed by a foreign country (cannot be claimed on income already excluded by the FEIE). A child credit is also available if the expat’s children have U.S. social security numbers.

What are Expats Required to Submit?

Filing taxes for expats, even if no taxes are owed, is recommended for all citizens and resident aliens in the U.S., and it’s no different for expats. Filing taxes becomes mandatory if a person’s worldwide income exceeds certain thresholds, depending on filing income. Income includes: wages/salary from US and non-US sources, Interest, Dividends, and Rental Incomes. In addition to normal filings, expats will be required to submit a Foreign Bank Account Report (FBAR, FinCEN form 114) if the total balance of all their worldwide bank accounts exceeds $10,000, including pensions, investments, and signatory authority accounts. Expats are also required to submit a Foreign Account Tax Compliance Act (FATCA) IRS Form 8938 if certain financial assets also exceed filing thresholds.

What Impacts on Social Security are there for Expats?

If an expat is considering retiring, they can rest easy knowing that they will still be able to collect social security benefits abroad (a handful of countries are excluded but can still collect monies owed if moving again to a country that isn’t excluded.) An expat that is collecting social security benefits may be taxed on them if they have other income, but only 85% of it can be considered taxable under U.S. tax for expat regulations. As well, Totalization Agreements with 26 countries outline which countries should receive your social security payment, and the credits earned in one country can be usable for benefit calculations in others.

When do Expats File for Taxes

Living abroad does not change the tax filing date for U.S. tax for expats (April 17th for 2018.) However, expats receive an automatic two-month extension to file (June 15th for 2018), although the original deadline is still when any taxes owed are due. Any filings completed must be in U.S. dollars, and they must be based on the yearly average currency exchange rates, unless specific date exchange rates are relevant for specific transactions. If returning to U.S., an expat may still be eligible to file with deductions and exclusions for the tax year if they are eligible, but he or she will receive no extension.Esquire Group, a boutique international tax advisory firm specializing in tax consulting, tax planning and compliance and helping corporate and individual taxpayers with Offshore Voluntary Disclosure Program, asset protection, and tax consulting for US expats. To learn more about us, visit www.EsquireGroup.com/about.

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I'm a freelance copywriter and I write on a variety of topics.

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Author: Benedict Kemper

Benedict Kemper

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Member since: Sep 26, 2016
Total live articles: 23

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